DWP scam consultation receives mixed industry response

The Department for Work and Pensions’ (DWP) proposals for tackling pension scheme fraud have been branded as “ill conceived” by AJ Bell, although some industry reaction has been more positive.

The proposals would give trustees and scheme managers the power to halt pension transfers or seek further information from transferring members, and outlined the circumstances in which transfers would be permitted to proceed without incident.

Pensions Minister, Guy Opperman, said: "I have listened to industry about the important part trustees play in preventing scams and believe the conditions on transfers set out in the draft regulations attached to this consultation put them in the driving seat when it comes to pension transfers."

However, while AJ Bell chief executive, Andy Bell, acknowledged that tackling fraud was “one of the most significant challenges facing the industry today”, he added that it was key that “the cure is not worse than the disease”.

Bell warned that classifying insured receiving schemes as a 'safe destination' whilst excluding platform pensions was arbitrary and showed that “the government has forgotten the Equitable Life scandal”, while he also worried that providers would direct red and amber flag questions in the case of all non-safe destination transfers.

He continued: “If providers take a blanket approach and ask these questions of all transfers to schemes not on the safe destination list, pension transfers could be pushed back into the dark ages. That would be ludicrous, could cause serious consumer detriment and needs to be urgently rethought.”

Bell also called for abandonment of the 'safe destination list' provided by the government, stating that it would “give consumers the impression that those schemes are impervious to scams” and ironically make them easier targets for fraudsters.

He concluded: “We need some pragmatism from the DWP to ensure customers are not harmed by these overzealous proposals. It is clearly not in anyone’s interests to clog up the transfer market or create barriers to savers switching providers and benefitting from lower charges or better service.”

A DWP spokesperson said: “We have issued this consultation to gather views from industry and the public on the regulations and their application, and will consider all the views put forward.
“Pension scammers are the lowest of the low, and with the growth in recent years of online scams we must act now to curb them.”

The distaste for the proposals was not echoed throughout the industry, although some raised concerns that the measures sought to protect younger savers who could not yet access pension freedoms.

Canada Life technical director, Andrew Tully, commented: “Scammers instead target customers who are age 55 plus when people can legitimately access their funds, and these measures will unfortunately do nothing to prevent that. The old adage still applies, buyer beware and if it looks too good to be true, it inevitably is. Simply walk away, delete the email or hang up if you are contacted out of the blue.

“We also have to be careful that any measures introduced don’t cause undue delays in people being able to transfer their pension benefits from one scheme to another. The industry has worked hard to get transfer turnaround times down and it wouldn’t be good if any new measures caused that to go into reverse.”

Pinsent Masons pensions partner, Ben Fairhead, was more positive, stating that the proposals had “the potential to be the most effective legislative change made in the past decade in the fight against pension scams”.

He continued: “It will finally give those responsible for requests to transfer schemes much greater scope to decline them when they have suspicions about the legitimacy of the intended destination scheme. There will be those who will have concerns that this will cause the transfer market to become bogged down or paralysed if multiple transfers are blocked or referred to the Money and Pensions Service for guidance.

“However, with a degree of common-sense, legitimate transfers should not be unduly delayed – and a bit of delay is surely a price worth paying if it results in potentially millions of pounds being saved from the clutches of pension scammers.”

Quilter pensions expert, Ian Browne, warned: "Future regulations will have to strike a delicate balance between maintaining an efficient and quick transfer market, in which the majority of ‘safe’ transfers aren’t effected, while limiting the scam risk across all schemes. The government will need to work closely with the pensions industry to get the finer details of the legislation right."

B&CE director of policy, Phil Brown, said: “We welcome the government’s consultation on introducing a red flag system for pension transfers, a move that would give the industry greater powers to tackle pension fraud, which is the cruellest of all financial crimes.

“Legislation on this issue was one of the steps we recommended in the research with the Police Foundation which we published last autumn, with its findings discussed at a subsequent Parliamentary inquiry into pension fraud.”

The Pensions Regulator executive director frontline regulation, Nicola Parish, added: “The vast majority of pension transfers are legitimate. But, for the small minority that are not, these welcome new regulations will provide an additional layer of scam protection for pension savers.”

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